Key Factors to Know Ahead of Enbridge's (ENB) Q4 Earnings

In third-quarter 2018, the energy infrastructure player met the Zacks Consensus Estimate of 42 cents. In the trailing four quarters, the company delivered a positive earnings surprise of 33.2%, without missing any estimates. This can be attributed to higher throughput volumes and key developments that have recently started operating. In the to-be-reported quarter, Enbridge is expected to report earnings of 45 cents per share.

Enbridge Inc Price and EPS Surprise

Enbridge Inc Price and EPS Surprise | Enbridge Inc Quote

Let’s see how things are shaping up for this announcement.

Which Way are Estimates Trending?

Let’s take a look at estimate revisions to get a clear picture of what analysts are thinking about the company before the earnings release.

The Zacks Consensus Estimate of 45 cents for the fourth quarter has seen one upward and a downward revision by firms in the past 30 days. It reflects a year-over-year decrease of about 6.3%.

Factors at Play

Enbridge has the longest and most advanced crude and liquids pipeline system in the world that spreads over 17,018 miles. In Canada, the company is touted to be the largest natural gas distributer. Hence, it is quite obvious that a significant portion of the company’s earnings is generated from transportation operations, driven by a string of long-term contracts. The substantial contract base will likely provide the company with a stable cash flow in the quarter to be reported. For 2018, the company expects distributable cash flow at the upper limit of its guided range of C$4.15-C$4.45 per share.

Enbridge has already brought online roughly C$20 billion worth of growth developments through 2017 and 2018. In 2018 alone, the company brought into service C$7-billion worth projects, which are expected to drive year-over-year growth. Also, the projects were placed into service on time and didn’t exceed budget, reflecting its strong project execution skills.

The acquisition of Spectra Energy led to the incorporation of leading natural gas transportation and storage assets to Enbridge’s portfolio. The merger has enabled the company to diversify its asset portfolio, as well as generate cash flow from natural gas and oil midstream infrastructure properties. Enbridge has become the largest energy infrastructure company in North America following the acquisition. The positivity from the deal is likely to be reflected in the to-be-reported quarter.

It is to be noted that the company estimates 2018 consolidated EBITDA to be around C$12,500 million. Notably, the company recorded EBITDA of C$6,721 million in the first nine months of the year.

However, the company’s year-over-year total operating costs in third-quarter 2018 rose 35.6% from the prior-year level. Expenses related to operations and administration also increased nearly 5%. If the trend continues in fourth-quarter 2018, its bottom line will be hurt.

What Does Our Model Unveil?

Our proven model does not conclusively show that Enbridge is likely to beat the Zacks Consensus Estimate in the quarter to be reported. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.

Earnings ESP: Earnings ESP represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate. Enbridge has an ESP of -3.50% as the Most Accurate Estimate stands at 44 cents while the Zacks Consensus Estimate is pegged at 45 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Enbridge currently carries a Zacks Rank #3. Though a Zacks Rank of 3 increases the predictive power of ESP, a negative ESP makes surprise prediction difficult.

We caution against Sell-rated stocks (Zacks Ranks #4 and 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Energy Stocks With Favorable Combination

Here are some companies from the energy space which, according to our model, have the right combination of elements to post an earnings beat in the upcoming releases.

Houston, TX-based Par Pacific Holdings, Inc. PARR has a Zacks Rank #2 and an Earnings ESP of +21.70%. The company is scheduled to report quarterly earnings on Mar 4. You can see the complete list of today’s Zacks #1 Rank stocks here.

Midland, TX-based Concho Resources Inc. CXO has a Zacks Rank #3 and an Earnings ESP of +1.07%. The company is slated to report fourth-quarter earnings on Feb 19.

Oklahoma City, OK-based Gulfport Energy Corporation GPOR has a Zacks Rank #3 and an Earnings ESP of +3.30%. The company is set to report quarterly numbers on Mar 4.

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